How ETFs stack up in 3 key metrics

Revelations from ETF Facts documents

The deadline for Exchange Traded Funds (ETFs) to file an ETF Facts document is less than a month away. But essentially all ETFs have already produced one of these documents as part of their annual prospectus filing. In fact, over 800 of these fact sheets have already been filed with regulators. For investors, the more important date to remember is Dec. 10. After this, dealers must send an ETF Facts to anyone who purchases an ETF. The document contains specific details about the ETF along with a number of informative metrics, including average daily trading volume, number of days traded, and average bid/ask spread. For more information about what these metrics measure and what they might tell you about an ETF, see my April article. In this article I'll examine how Canadian ETFs stack up for each of these measures.

All three of these data points require historical market data, so new ETFs that published ETF Facts prior to launch will not have this information. Out of the 802 ETF Facts, 272 belong to new funds, leaving us with data for 530 ETFs.

Average Daily Volume

The average volume ranges from 8.5 million units per day all the way down to 26 and 44 units per day. The highest volume belongs to Canada’s largest ETF by assets under management (AUM), theiShares S&P/TSX 60 Index ETF (TSX: XIU). The lowest-volume offerings belong to DWG.U and DWG.F, the USD and CAD-hedged versions of Invesco DWA Global Momentum Index ETF (TSX: DWG). The main series had better daily volume of 2,030 units, but still well below the median average daily volume across all ETFs of 16,000 units. Twenty-seven ETFs trade less than 1,000 units per day, 94 trade more than 100,000 units per day, and only nine trade more than one million units per day.

The category with the highest average daily volume is Passive Inverse/Leveraged. Considering these ETFs are normally day-traded and are not meant to be long term holdings, the high volume is understandable. The next highest category is Canadian Equity, a category that includes four of the top 10 ETFs by AUM, including XIU.

Among ETF providers, the highest average daily volume is posted Horizons ETFs, followed by BlackRock, and BMO. Horizons takes top spot mainly due to the number of Passive/Inverse Leveraged ETFs it offers, while BlackRock and BMO are the two largest ETF providers by AUM and market share

Number of Days Traded

Because the time period used is not always the same, we will look at the percentage of the number of days traded compared with the potential number of days. 288 ETFs, or 54%, scored 100%, meaning they traded every day. At the low end of the spectrum, First Trust AlphaDEX Emerging Markets Dividend ETF (CAD Hedged) Advisor Class (TSX: FDE.A) scored 2.4%. This ETF traded just six days out of 249. As was the case with the Invesco ETFs mentioned above, this ETF is a series of FDE, in this case an Advisor series. However, even FDE trades less than half the available days with a score of 45%. In total, 11 funds scored less than 10%, and 52 funds were less than 50%.

On average, BlackRock and BMO had the highest percentages of number of days traded among ETF providers with a minimum of 10 funds. They averaged 99.4% and 99.3%, respectively. FT Portfolios Canada scored the lowest, at 54%, with WisdomTree next at 66%.

Average Bid/Ask Spread

Curiously, the lowest spread belongs to Horizons Robotics and Automation Index ETF (TSX: RBOT) at 0%. Since an average spread of zero over a long time frame (in this case 148 days with an average volume of almost 40,000 units per day) is highly unlikely, we will assume there was a rounding error and move on to the next lowest spread. Ignoring money market and high interest savings ETFs, 12 ETFs have a spread of 0.04%. This group consists of some of the largest ETFs by AUM. At the other end of the spectrum, we see spreads as high as 1.72% for First Asset Canadian Convertible Bond ETF (TSX: CXF) and 1.66% for the Auspice Canadian Crude Oil Index ETF (TSX: CCX). In total, there are seven ETFs with a spread greater than 1%, while the median value is 0.19%.

From a category perspective, looking only at those categories with more than 10 funds, the lowest average spreads belong to Canadian Dividend and Income Equity, Canadian Short Term Fixed Income, and Canadian Equity, all at 0.12%. Commodity, High Yield Fixed Income, and Emerging Markets Equity have the highest average spreads, at 0.72%, 0.46%, and 0.4%, respectively.

By ETF Provider, Vanguard has the lowest average spread, at 0.15%, followed by BMO and BlackRock, at 0.16% and 0.18%, respectively. The highest average spread, aside from Auspice’s lone ETF, is posted by Harvest Portfolios Group ETFs, at 0.53%.

Brian Bridger, CFA, FRM, is Vice President, Analytics & Data, at Fundata Canada Inc. and is a member of the Canadian Investment Funds Standards Committee.

Notes and Disclaimers

Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the simplified prospectus before investing. Mutual funds are not guaranteed and are not covered by the Canada Deposit Insurance Corporation or by any other government deposit insurer. There can be no assurances that the fund will be able to maintain its net asset value per security at a constant amount or that the full amount of your investment in the fund will be returned to you. Fund values change frequently and past performance may not be repeated. The foregoing is for general information purposes only and is the opinion of the writer. No guarantee of performance is made or implied. This information is not intended to provide specific personalized advice including, without limitation, investment, financial, legal, accounting or tax advice.